How Does the IRS Calculate RMDs?

To make things simple, there are calculators you can use to figure out how much you need to withdraw from your IRA when you turn 73 years old. The calculator works by dividing your account’s year-end balance by your current year’s life expectancy factor. The IRS has what it calls a “Uniform Life Expectancy Table,” where it assigns you a life expectancy factor based on your current age. As you get older, your life expectancy goes down, so the denominator of your calculation will also go down. It follows that an older person with $100,000 in his IRA will have to withdraw more money than a younger person with $100,000 in his IRA.

There is, however, an exception to this method of calculation. The exception applies if you have a spouse that is over 10 years younger than you and that is named as the full beneficiary of your account for the whole year. In this limited scenario, the IRS uses a “Joint Life Expectancy Table” instead of a “Uniform Life Expectancy Table.” Your combined life expectancy with your spouse will be smaller, which of course means your RMD is then lower.

Of note, you can always withdraw more than the RMD requires you to withdraw. However, whatever money you do withdraw will be taxed as ordinary income, so few people decide to exercise the option to take more than necessary.

Which Accounts Require You to Take RMDs?

In general, the following types of IRAs are subject to RMDs: traditional, rollover, inherited, simplified employee pension, and savings incentive match for employees. Qualified retirement plans are also generally subject to RMDs. Roth IRAs, on the other hand, are almost always exempt from the requirement.

It is important to understand that account owners must calculate their RMD separately for each IRA account they own. After calculating this amount, though, they can withdraw the total RMD from one single account. The exception to this rule comes into play if you own a 401(k) or 457(b) plan, under which the IRS requires you to take the RMDs separately from each account.

When Does the IRA Require You to Take RMDs?

In short, you must start taking RMDs when you turn 73. This means that your deadline is December 31 in whichever year you have your 73rd birthday. You can also, however, delay the process and take your first RMD the next calendar year – as long as you take it by April 1 of that following year. Your deadline for a second RMD is December 31 of the year after you turn 73. For this second deadline, there is no option to delay.

What Happens if You Don’t Take an RMD?

The IRS imposes penalties for those that do not take their RMDs. If you miss the deadline for your RMD, you will face a 25% excise tax on your RMD withdrawals. If you correct the error quickly, however, it is possible to get this tax lowered to 10%. Either way, the penalty is harsh if you fail to abide by the IRS’s deadlines.

What Are the Options for Receiving an RMD?

You can take your RMD in the form of a lump sum or in the form of smaller payments. You can also schedule the payments to hit your bank account automatically over a period of time. If you do not want your RMD as cash, you can immediately put it in an investment account or a trust that you have set up. You might also choose to put the money in a high yield savings account or to give the money to a charitable cause. As always, with questions about this process, you should contact a wealth advisor or estate planning attorney that can help you sort through your options.

There is much more to RMDs than we have included in this blog post. RMDs are complicated, and the IRS’s rules on RMDs are frequently changing. At Braverman Law Group, we don’t recommend you try to go it alone. The tax penalties are too high, and when there is a lot at stake, you need an expert in your corner. Because RMDs change so significantly from person to person, from circumstance to circumstance, your best bet is making sure you have sound, experienced advice available to you about how to navigate this complex process.

Speak With a Boulder, Colorado Estate Planning Attorney Today

RMDs should factor into how you think about your estate plan. The IRS does not allow you to keep your IRA at its full value for the rest of your life, so how does this affect how much you will leave behind for your beneficiaries? What exactly will be left when you pass? To talk through the answers to these questions, contact the Braverman Law Group today. Our firm is committed to providing personalized counseling, clear explanations, and powerful execution. We have the experience and the strategy to get you the results you need, when you need them the most.

For a free, no-obligation consultation with one of our Boulder estate planning attorneys, give us a call today at (303) 800-1588. If you prefer, you can also fill out our online form to tell us about your legal issue and have a member of our team reach back out to you as soon as possible. We cover estate planning, trust administration, special needs planning, Medicaid planning, and more.

On today’s blog, we cover some important connections between the two industries, as well as what you can do if you feel like you need more time on your taxes. As always, this blog represents only a portion of what clients should know about the overlap between wealth management and tax-related services, and it is never a bad idea to speak with an experienced attorney that can help you navigate both worlds as seamlessly as possible.

Filing for an Extension

If you are in the process of starting to prepare your estate plan, do not hesitate to request a tax extension. During tax season, there is a common misconception that requesting an extension leads to an increased audit risk, but this is not the case. Instead, extensions can offer much-needed relief to those who are taking time to get their affairs in order. For those who will end up filing differently depending on the structure of their estate plan, it can be well worth it to ask the IRS for more time to file. Additionally, creating and finalizing an estate plan can take many months, and it is better to participate in the process thoroughly and carefully, so as not to skip any key steps in drafting your plan.

To request an extension, you will likely need to file for an extension with the IRS as soon as possible. By filing this request by April 15, you can avoid penalties that you might otherwise incur by filing your taxes past the deadline. One other option, if you have already filed your taxes, is filing an amended return, which can allow you to include information you did not have at your disposal when you originally filed.

Looking Ahead to Next Year

Additionally, you might be looking to start or change your estate plan in the coming months. If this applies to you, it is crucial that you ask your estate planning attorney about how your estate plan will affect your taxes for 2024 (to be filed in 2025). One of the most common mistakes we see in our area of law is that individuals procrastinate on gathering important documents, finalizing plans, and submitting paperwork; by getting ahead of the process now, soon after the 2023 season comes to a close, you can avoid this potentially costly error.

Considering Tax Implications for Wealth Management

It is just as important to make sure you understand how taxes could negatively affect your wealth management goals. For example, you might be taking up various trading activities as part of your attempt to grow your assets, and while initially beneficial, these activities could end up in generating a high tax bill when April comes around. Too often, we see clients who wait to think about taxes after they forge a plan for wealth accumulation and put that plan into place. Ultimately, tax implications are just one part of a wealth management strategy, and other considerations (family circumstances, short-term needs, and possible beneficiaries) are all other factors to keep in mind.

Similarly, you can think about how your charitable goals might align with a possible tax benefit. If you have money to spare, not only can it be worthwhile personally to find a cause you care about, but it can also reap rewards when you do file your taxes in April. Notably, only charitable donations over a certain amount qualify individuals for a tax benefit, so you should speak with an expert to get a handle on what this amount might be for you.

Consulting a Boulder Estate Planning Attorney

As you speak with professionals regarding either your taxes or your estate plan, we advise that you make sure the firm offering you their services is prepared to speak on both matters. Recently, we have seen an uptick in major transactions that relate to both industries, and even if your tax consultant does not have expertise on estate planning (or vice versa), he or she should be able to refer you to someone who does. While it can be daunting to have to consider both taxes and wealth accumulation at the same time, choosing qualified, experienced professionals to guide you can help you stay on track. Ultimately, estate planning and tax filing are both inherently individualized processes, and it is important to speak to a Boulder estate planning attorney to make sure you are working toward your goals and doing everything above board. By taking the time to get expert advice in the short term, you can end up saving yourself major headaches in the long term.

The Braverman Law Group: Boulder Estate Planning Attorneys Working for You

At the Braverman Law Group, we are committed to providing the personalized and client-centered representation to those that retain our services. We pride ourselves in offering clear explanations of complex issues as well as powerful execution of litigation strategies, so that we can fight diligently for our clients’ best interests. Our team handles a range of cases, including those related to estate planning, trust administration, special needs planning, and Medicaid planning. We are honored to be part of your estate planning journey every step of the way, and we are committed to making sure you have the right tools to achieve your financial goals. For your free and confidential consultation with an experienced Boulder estate planning lawyer, give our office a call today at (303) 800-1588. If you’d rather, you can also fill out our online form and have an attorney reach back out to you as soon as possible.

We always dissuade our clients from thinking this way. To state the obvious, we never know what’s around the corner. With no way of predicting the future, the best tool we have to ensure that our wishes are respected in the long-term future is making a thorough estate plan as soon as possible. Below, we detail several reasons why now is the best time to start (or continue) your estate planning journey.

Tax Exemptions in 2026

The federal government is gearing up to significantly alter how it handles certain kinds of tax exemptions. For example, did you know that the gift and estate tax exemptions will all be cut in half in 2026? The lifetime gift tax exemption was $11.58 million in 2020, increased to $12.92 million in 2023, and is now scheduled to decrease to $6 million in 2026. As for the estate tax exemption, it currently sits at $12.92 million per person. In 2026, the exemption is scheduled to decrease to roughly $7 million.

These exemptions can have major implications for those trying to pass on assets to their heirs and loved ones. This means that if you want to do more in 2024 and 2025 to pass on gifts to loved ones, 2024 is the time to put plans into action. By waiting until the end of 2025, you risk missing out on a major tax benefit that will be substantially less beneficial within the next two years.

Inflation

Inflation has been significantly affecting our clients for the past several years, and it is important to keep this in mind when estate planning. For example, because the yearly gift tax has consistently been on the rise, it might be more feasible now for you to increase your yearly gifts to your loved ones in a way that was not possible several years ago. In 2024, the yearly gift tax sits at $18,000 per individual per year or $36,000 per married couple per year. Annual gifting is one way our clients move wealth across generations over longer periods of time, benefiting both themselves and their heirs in the process.

Even if you do not consider yourself to be a high-net-worth individual, changes in inflation will affect your estate plans. Inflation affects everything from property costs to retirement plans to the values of debts that you hold. By neglecting to account for inflation in your estate plans or by not revisiting your estate plan regularly, you may be missing out on an opportunity to properly account for changes in the national and local economies.

Circumstantial Changes

The list of possible circumstantial changes in a client’s life is immeasurable. Has one of your children gotten married? Has anyone gone through a divorce (or is anyone planning on pursuing a divorce)? Has there been a recent incapacity, or is there an illness in the family? These are all things to think about – even if none of these changes have taken a toll on you and your loved ones, it is worth your while to plan as if any of these events could happen at any time. By starting your estate plan now, instead of when you are in crisis mode, you can give yourself the best chance of financially succeeding through these difficult times.

Communication with Loved Ones

Estate planning is also a great way to make sure you are talking with those who will be affected by your plans in the future. It is beneficial to make sure those that will inherit from your will, as well as those that will be responsible for executing your will, have copies of all of the relevant documents and records. Having discussions about how your assets will be distributed allows for less confusion your estate plan, which in turn allows your loved ones to execute your plans efficiently. We always encourage our clients to communicate with their loved ones early and often regarding their plans, to make sure any possible bumps in the road can be addressed before they become insurmountable hurdles.

Where Do I Start?

Estate planning can be stressful, and oftentimes, taking the first step is the hardest part. If you do not know where to begin, contact a qualified estate planning attorney to set up an initial meeting. Go to your meeting prepared with questions about how factors like inflation and tax exemptions might affect your individual circumstances. At the end of the day, everyone is different, and everyone’s estate plan will necessarily be different. By finding an attorney that can tailor your plan to your priorities, you can make sure you look out for your own interests and the interests of your loved ones in the long-term future – and what better goal could you set as we ring in 2024?

Are You in Need of a Team of Estate Planning Attorneys in Colorado?

At Braverman Law Group, we specialize in wills, trust, and estates for clients in Colorado. Our team is proud to create thoughtful, detail-oriented estate plans for those that seek our services, so that our clients can do everything in their power to set their loved one up for financial success in the future. If you would like a free and confidential consultation with a member of our team, give us a call today at 303-800-1588. You can also fill out our online form to contact us and have an attorney reach back out to you as soon as possible about your estate plans.

How Can I Use Tax Laws to Plan My Estate?

A recent Forbes article highlights several provisions in tax law that can help you with estate planning during inflation. First, take advantage of the increased lifetime gift tax exemption and generation-skipping transfer (GST) tax exemption. The lifetime gift tax exemption allows you to give away a large monetary amount in gifts throughout your lifetime without triggering taxation. The GST tax applies to inheritances that “skip” a generation (i.e., from your children to your grandchildren). The exemption allows you to set aside nontaxable gifts to benefit a grandchild, such as college tuition. In response to rising inflation, the IRS has increased the lifetime gift and GST tax exemption amounts. As a result, a higher monetary amount is now exempted from gift and GST taxes. To take advantage of these exceptions, you may consider giving a gift to your beneficiaries while they are still alive to reap the benefits of the increased exemptions.

If you are considering a gift to your beneficiaries while you are still alive, consider a gift in the form of appreciating assets such as stocks or real estate. Appreciating assets are a wise financial decision for two reasons. First, by gifting an appreciating asset while you are alive, your recipients can avoid estate and gift taxes on the asset. Second, as the asset appreciates, your recipients can take advantage of their increased value.

Finally, use a grantor retained annuity trust (GRAT) or charitable lead annuity trust (CLAT). A GRAT allows you to transfer assets to a trust and receive an annuity for a certain fixed time period. A CLAT allows you to transfer assets to a trust that pays an annuity to a charity for a fixed time period. When that time period ends, beneficiaries receive any remaining assets in either trust without paying taxes. Using these strategies, you can use inflation to your advantage and maximize the amount your beneficiaries receive.

Speak With a Boulder Estate Planning Attorney Today

Rising inflation may affect your estate planning strategy. To understand your best options, contact the Boulder, Colorado estate planning attorneys at Braverman Law Group today. Our attorneys can help you develop a gift and estate plan that takes full advantage of current tax rates. Whether you plan to form a trust or give a generous gift, we can help you maximize the amount your beneficiaries will receive. To schedule a free, no-obligation consultation with an attorney on our team, call us today at (303) 800-1588.

According to an article recently published by a financial advising trade publication, taking advantage of the deduction may not be simple for all Colorado landlords. The deduction requires landlords to own the property personally or through a business entity such as an LLC. Additionally, the properties must be managed as a “business” and not as an investment. Although the exact requirements for a property to be managed as a business are not clearly laid out, landlords who meet certain requirements laid out by the IRS can ensure that they are able to use the pass-through deduction.

The IRS has established a “safe harbor” rule that allows Colorado residents and other Americans to utilize the pass-through deduction if they keep separate books for their rental properties and can show that at least 250 hours of real estate rental services are performed on the properties each year. The 250 hours do not need to be performed personally by the taxpayer and can include services such as maintenance, cleaning, lease preparation and negotiation, advertisement, collecting and processing rent, as well as other work performed on the business.

Landlords who spend less than 250 hours per year performing work on their real estate rental business may still be entitled to claim the 20% pass-through deduction. However, such eligibility is not automatic. If a taxpayer claims the deduction without meeting the “safe harbor” requirements, they may be subject to a costly audit and possibly be required to pay back taxes if the deduction was claimed improperly. The risk of an audit causes fear and confusion among Colorado investors and business owners. Any Colorado landlord with questions about their eligibility for the 20% pass-through deduction should reach out to a qualified Colorado tax and estate attorney to choose the best course of action to reduce their tax liability.

Finding the Right Boulder Estate Planning Attorney for Help Reducing Your Tax Liabilities

If you or a loved one is looking for advice and counsel on how to best manage your estate and assets, including rental properties, the estate planning attorneys at Braverman Law Are here to help. Our qualified asset protection attorneys and certified financial planners can help you to reduce your and your heirs’ future tax burdens. Whether you have questions about recent tax law changes, or other estate planning needs, the Braverman Law Group will find the answers with you. To schedule a free, no-obligation consultation with one of our trusted attorneys, give us a call today at (303) 800-1588

For example, the IRS announced it will raise the estate and gift tax exclusion limit in 2023. Individuals can gift up to $12.92 million to their heirs and beneficiaries, an increase from $12.06 million in 2022. Combined limits for married couples will be nearly $26 million in 2023.

Tax-free gifts also see a higher annual limit for 2023. Individuals can give away $17,000 per recipient without reducing the lifetime exclusion, a $1,000 increase from $16,000 in 2022. These adjustments are a routine part of the IRS’s annual inflation adjustments.

But act now to take advantage of these exclusions. The current gift and estate tax exemption provision will sunset in 2025 unless Congress takes action to renew it. Then, the amount will drop to the prior law’s inflation-adjusted $6.2 million. But Congress could accelerate the sunset provision even sooner than 2025—and it even attempted to do just that in the now-failed Build Back Better plan. Do not delay creating a plan to ensure your wealth is shared with your family—the tax landscape can change at any moment, and you do not want to miss out on even minor year-over-year limit increases.

Estate Tax in Colorado

Colorado is one of 38 states with no estate tax. Colorado eliminated its estate at the end of 2004 after a gradual reduction. This means that high-net-worth individuals can take advantage of the federal exclusion without considering any state taxes or restrictions. Colorado also has no inheritance or gift tax.

Estate Planning Tools

Individuals and families can use these exclusions to employ advanced estate planning tools such as traditional trusts, generation-skipping trusts, and Spousal Lifetime Access Trusts, or SLATs, which allow you to transfer assets between spouses without incurring substantial tax liabilities. These tools also allow the assets to avoid probate, which can otherwise pose a substantial headache for heirs and beneficiaries down the line. An estate planning attorney can help you determine which tools and techniques make the most sense for your unique circumstances.

Call a Colorado Estate Planning Attorney

Call a Boulder estate planning attorney today to make sure your estate plan takes the best advantage of all available tax laws—and avoids any unpleasant surprises. Braverman Law Group can help with all of your estate planning needs, including establishing trusts and planning for taxes. To schedule a free, no-obligation consultation with one of our trusted attorneys, give us a call today at (303) 800-1588.

Wealth Transfer Taxes

In addition to the more commonly known income taxes, there are three types of taxes to consider when estate planning. These types of taxes are collectively known as wealth transfer taxes and include gift taxes, estate taxes, and generation-skipping taxes. These can all be minimized or avoided through creative planning and the use of trusts.

Gift taxes are taxes paid by a person who transfers assets to another person without receiving something in return and are quite common. There are federal gift taxes that range from 18% to 40%, depending on the amount of the gift, and some states impose gift taxes as well.

Estate taxes are imposed on the estate itself when a person dies. Conversely, inheritance taxes are imposed on the person inheriting the funds. These taxes are collectively rare and are imposed federally on only very large estates—in excess of $12.06 million as of 2022—and most states do not impose these taxes.

Finally, generation-skipping transfer taxes incur when an individual or couple gives property or assets to a grandchild or great-grandchild. The exemption level is the same as that of estate and inheritance taxes or $12.06 million federally.

Probate Costs

Another area of potential expense for high-net-worth individuals is probate costs. Probate, or the legal process that begins when someone dies that includes validating and administering a will, can be expensive and time-consuming. Large estates can come with higher stakes and more disputes, further driving up the time, money, and hassle expended by your loved ones. Trusts can be utilized to keep certain assets out of probate. There are many types of trusts available, including Spousal Lifetime Access Trusts (SLATs), revocable and irrevocable living trusts, and intentionally defective grantors trusts (IDGT). A skilled attorney can help determine the best way to deploy these trusts.

Contact a Boulder Estate Planning Attorney for Assistance

If you wish to maximize the value of your estate, you need an estate planning attorney who understands your unique needs. The Boulder-area attorneys at Braverman Law Group make it their goal to help you make the choices that work best for you and your loved ones. To schedule a free, no-obligation consultation with one of our trusted attorneys, give us a call today at (303) 800-1588.

Tax Credits for Homeowners

Homeowners could get up to a 30% tax credit for installing solar panels or other renewable energy equipment, such as windmills. Costs incurred in installation from 2022 through 2032 qualify for a 30% tax credit. The credit falls in later years, dropping to 26% in 2033 and 22% in 2034. This extends a previous tax credit set to expire in 2023 and, starting in 2023, includes battery storage technology so homeowners can pair solar panels with storage.

Other home efficiency projects, such as energy-efficient windows and water heaters, also qualify for a 30% tax credit toward installation costs. The cap on these savings is $1,200 a year, though some projects can qualify for higher caps. The installations must meet certain efficiency criteria to qualify, and some specific items have individual caps. The credit also covers the cost of a home energy audit (up to $150) and an electrical panel upgrade (up to $600).

There are no income limits for these credits, but the credits are not refundable in the event a consumer does not have tax liability. The credits do carry over.

There are also rebate programs for efficiency upgrades to their homes, based on a percentage of energy usage cut. Lower-income households qualify for higher rebates. In addition, home appliances can qualify for a separate program, though the same project cannot apply to both rebate programs. State governments have to apply for grants, and the limits will vary by state.

Tax Credits for Electric Vehicles

Individuals and families who buy new energy-efficient vehicles such as electric cars, hybrids, and hydrogen fuel cell vehicles qualify for a tax credit worth up to $7,500. This credit is available through 2032. However, these tax credits only apply to those with under $300,000 joint adjusted gross income or $150,000 individual adjusted gross income. In addition, even if your income level qualifies, purchase prices are capped. If your passenger car is purchased for more than $55,000, you will not qualify. The limit for vans, SUVs, and pickup trucks is $80,000.

However, do not expect the full extent of these benefits soon. Auto companies in the United States have to adapt to supply new vehicles that will qualify for this initiative. Used versions of clean vehicles, however, qualify for the lesser of $4,000 or 30% of the sales price. The income limits are lower for this tax credit: $150,000 for married couples or $75,00 for individuals, and the sales price cannot exceed $25,000.

Colorado Estate Planning Attorney

For help figuring out how these initiatives impact your estate planning goals, contact the Boulder estate planning attorneys at the Braverman Law Group. To schedule a free, no-obligation consultation with one of our trusted attorneys, give us a call today at (303) 800-1588.

Here are some of the main areas of estate planning to review in 2021.

Tax Exclusions

The unified tax credit allows people to transfer portions of their estate without incurring federal gift or estate taxes.

For 2021, the unified tax credit is $11.7 million for individuals and $23.4 million for married couples. These figures apply to gift and estate taxes combined. In other words, use of the exemption for lifetime gifts reduces the amount of assets that can be transferred tax-free after death.

It is important to understand that this generous exemption is not intended to be permanent. Unless Congress passes legislation saying otherwise, then the current credit will apply only to tax years up to 2025. Under current law, the exclusion will be halved after 2025. For this reason, it may make sense to begin gifting assets to loved ones now rather than through a will.

In addition to the unified tax credit, it is also important to consider the annual gift tax exemption.

Each year, people can make up to a certain dollar amount of gifts without incurring the federal gift tax or dipping into the lifetime exclusion. For 2021, the annual exclusion amount for an individual is $15,000 for each gift recipient. That means that a married couple could gift $30,000 to each of their children, grandchildren, nieces, nephews, and other loved ones without incurring the federal gift tax. For some couples, taking advantage of the annual gift tax exemption is an excellent strategy to reduce their taxable estate while still preserving the lifetime exemption.

Advance Directives and Powers of Attorney

In addition to reviewing your financial planning documents, it is also prudent to review your plans periodically for end-of-life care or periods of incapacitation. Especially if you have recently experienced a significant life change—such as losing your partner or becoming ill—it may be necessary to update the legal documents that will guide your medical and financial decision-making should you become incapacitated.

Although it is best practice to review your estate plan at least annually, various pieces of legislation and the change in administration has made 2021 an especially important year to complete a year-end review. Working with an estate planning law firm can help ensure that you are making the most of your assets while protecting them in the years to come.

Consult a Colorado Estate-Planning Lawyer

As the year draws to a close, there is still time for Boulder residents to create or revise planning documents before the New Year. To help ensure your plan is optimized for 2021, contact the Braverman Law Group today. Our experienced attorneys provide advice and representation regarding Colorado estate plans, asset protection, special needs trust, and more. Whether your estate planning needs are simple or complex, we have an excellent track record of helping people like you achieve peace of mind through responsive estate planning. To schedule a free initial consultation with one of our Coloradan estate planning attorneys, call (303) 800-1588 today.

Versions of the Build Back Better bill have included provisions to trigger capital gains tax on a regular basis for assets held in trusts, upon death, and when making a gift. Congress also considered dramatically reducing the unified tax credit, which would have restricted the reach of grantor trusts as an estate-planning tool.

But the bill in its current form does not impact the estate tax system directly. Where does this leave Coloradans who have made changes to their estate plan in response to this legislation?

In general, Colorado estate holders who have begun the planning process in response to Build Back Better have little to fear. This is because the proposed legislation is still just that—a proposal. Until the bill is passed into law, no one can know whether estate tax changes will be included.

Although the bill in its current form does not include any direct estate tax changes, it is wholly possible that Congress will reincorporate some of the dramatic changes it had previously considered in order to pay for the large spending program it envisions.

In addition to the fact that the bill is still in flux, it is also worth noting that the bill in its current form still targets taxpayers with high incomes. For example, the bill contains a special tax of 5 percent on those with incomes above $10 million, along with an additional 3 percent surtax for those with incomes above $25 million. The 5 percent tax will also apply to trusts with very modest incomes.

If these provisions remain in the final version of the bill, then trusts will still need close monitoring and adjustments.

First, moving forward, it may be advantageous to allow trusts to make charitable contributions from gross income since these contributions could qualify for the charitable contribution deduction. However, this technique will only be available to trusts that explicitly permit contributions in the original language of the governing instrument. Otherwise, a viable strategy to obtain the benefit of the deduction may be to contribute trust assets to partnerships that pay charitable contributions.

Second, non-grantor trusts that may be subject to the 5 percent surtax would be wise to review their tax status before the New Year. This includes evaluating gains and incomes, the tax status of those figures, and possible distributions. Carefully calculated distributions could result in substantial savings over the long run.

Finally, when drafting trusts in the future, planners should consider strategies like including more flexible classes of beneficiaries in the governing language. Doing so would allow trusts to distribute income to beneficiaries in lower income tax brackets in order to avoid harsh surtax rates.

Despite the headlines, those with substantial estates should still be meeting with qualified professionals in order to plan appropriately for upcoming changes to federal law. Law firms specializing in estate planning can help you protect your estate for yourself and future generations.

Contact a Colorado Estate-Planning Attorney

If you are a Colorado resident with a pre-existing estate plan or wish to begin the estate planning process, contact the Braverman Law Group today to get started before the New Year. There is still time to engage in proactive planning before Congress once again may unsettle estate-planning techniques. The Braverman Law Group has an excellent track record of helping Coloradans like you plan strategically to ensure peace of mind for the future. Although our attorneys are recognized as some of the leading estate-planning attorneys in the country, we pride ourselves on individualized attention and sustained relationships with each one of our clients. To set up a free consultation, call (303) 800-1588 today.

Reduction in the Unified Credit Amount

Effective in 2022, the current proposal halves the estate and gift tax exclusion. This change essentially reverses the Tax Cuts and Jobs Act’s recent change to the exclusion and will affect Coloradans with large estates.

The estate tax exemption affects wealth transfers at the time of death by allowing the deceased person to transfer up to a certain amount of her assets without being subject to the estate tax. Similarly, the gift tax exclusion lets living people transfer up to a certain amount of money without having to pay gift tax. Both exclusions are important tools in the estate planning toolbox.

Importantly, the federal gift and estate tax exclusions operate together. The lifetime amount that someone claims on the gift exclusion reduces the total that can be claimed for the estate exclusion.

It seems likely that this portion of the tax increase proposal will remain intact. Accordingly, single and married individuals with assets greater than $6 and $12 million, respectively, as well as people whose assets may obtain those amounts over time, should seriously consider making large gifts before the end of 2021. This strategy is worthy of careful consideration since it will maximize the current exemption amount.

Crackdown on Grantor Trust Planning Strategies

In its current form, the tax proposal will restrict grantor trusts dramatically, with some of the restrictions beginning as soon as the bill is passed into law.

Grantor trusts have long been the backbone of estate planning. With a grantor trust, the income in the trust is taxed to the person who created it. One type of grantor trust—the intentionally defective grantor trust—removes any assets contributed to the trust from the estate of the person who made it. In this way, the grantor enjoys both planning benefits during her life as well as estate tax planning benefits upon her death.

Although the current language of the proposal is somewhat unclear, it seems as though intentionally defective grantor trusts will no longer be a viable strategy. These restrictions will be effective for any trusts drafted as of the bill’s enactment. Therefore, there may be only a short window of time to take advantage of this important planning tool.

The proposal also treats transfers between a grantor and a grantor trust she creates as sales. In other words, the new law would treat this type of transfer as though it occurred between the grantor and a third party. This treatment triggers capital gain while depriving the grantor of recognition of a loss. It also harms a grantor’s ability to “swap” assets of equal value, a strategy commonly employed to save taxes on high-basis assets. This second portion of restrictions will apply to amounts funded after the bill becomes law.

Elimination of Valuation Discounts for Nonbusiness Assets

The tax proposal will prohibit the use of valuation discounts for the transfer of nonbusiness assets, including passive assets like cash and marketable securities. The transfer of nonbusiness assets—like transferring a marketable securities portfolio into a family limited liability company—has long been used to reduce the value of the non-controlling entity to minimize the tax burden.

Moreover, the proposal limits the use of valuation discounts by taxpayers who purchase an entity with special features, like lack of marketability or minority ownership.

The elimination of this discount is a major change in the law that will block an estate holder’s ability to compress the value of her assets before gifting them to the next generation. Critically, this part of the proposal will take effect immediately after the spending bill becomes law. For those seeking to maximize wealth transfer to the younger generations, the time to act is now.

Colorado residents must be prepared for each of these major changes to taxation coming down the pike.

Consult a Colorado Estate-Planning Attorney to Protect Your Assets

The Braverman Law Group is watching these developments in Washington, D.C. closely in order to protect Colorado estate planning clients who will be negatively affected. If your total net worth, including life insurance benefits, exceeds $6 million, contact the Braverman Law Group while there is still time to act. Beginning next year, the forthcoming reduction in the unified credit amount will severely impact your ability to claim the gift exclusion, costing you and your family untold amounts. To schedule a free consultation with an experienced estate planning attorney, call 303- 800-1588.

This won’t be of interest to many of you, I’ll admit right up front. It’s a niche blog post. But I couldn’t ignore it because for those of you who own businesses or have children launching into the workforce, this could be great news! If you don’t offer a traditional retirement plan, until now, you’ve been at a loss, without tools to help your lowest-wage earners with retirement. Likewise, if your kids are at a first or second job, they probably aren’t being offered the full retirement package and this could help them start the retirement savings habit as soon as they start working – a great idea! Not to mention the tax savings…

The Obama administration has created a new retirement plan just for those starting out with retirement savings. It’s called the MyRA and if you blinked during the State of the Union address, you might have missed it.

It boils down to a safe, entry-level Roth IRA for people who want to invest as little as five dollars ($5.00) at a time with zero risk. It has a fixed return.

A Quick Lesson on Basis

I say it’s like a Roth-IRA because withdrawals of principal (technically, of basis) are tax-free. That distinction between principal and basis is an important one when our hypothetical investor gets into the big bad unsheltered world of retirement savings where investments go down sometimes.

If an investment goes down, and you get to withdraw principal tax-free, you just lost some of your tax-free money because your principal disappeared when your investment dropped below what you put into it.

But if you can withdraw tax-free the value of what you put in – regardless of what it is worth today – you get to withdraw your “basis”. So if your investment in Buff Brownies got cut in half but your investment in Clean Cars doubled, you can withdraw a lot of those Clean Cars gains tax-free (normally gains would be subject to tax) because you are applying the basis leftover from your investment in Buff Brownies that you can’t use against Buff Brownies because Buff Brownies’s stock dropped and the money isn’t there to withdraw.

To qualify:

• The employer must not offer a “traditional” retirement plan (Obama didn’t define “traditional” during the speech so we’ll have to see what that means in the coming months;
• The participant (kid/employee) must earn less than one hundred, ninety-one thousand dollars ($191,000) per year (Obama didn’t specify whether that was individual or family income so that we’ll have to wait and see on that too).

The participant’s first investment must be at least twenty-five dollars ($25). Subsequent investments must be at least five dollars ($5) each.

Once the MyRA totals fifteen thousand dollars ($15,000), the participant must roll it over into a private Roth IRA. It is unclear if they may then open another MyRA.

For our readers who work with and can help people who would benefit from knowing about this new plan and for those who have children who are just launching into their work careers and can benefit from having a retirement vehicle that starts them early on the path to a lifetime savings habit, I hope this has been a helpful blog article. Please share your thoughts in the comments.

Rabbit and Boa Constrictor thanks to herpcenter.com

If you’d like me to keep you up to date as this rabbit of legislation wends its way through the boa constrictor that is our nation’s capitol, please let me know in the comments why you’re interested in it – whether it’s for your own use, for your children, for sharing with friends, with employees, or for some other purpose. It’ll help me give you the most relevant information. And be sure to check “Yes” on the poll! Thanks!

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There are so many easy ways to screw up your estate plan – which can damage family relationships for life in many cases – and so few ways to make sure it’s right. I’ll share how our clients get peace of mind that their plan’s going to provide what they need and bring their family closer, not the opposite.

Not Having a Plan

In a sense, everyone does have an estate plan: state law makes this point a certainty. It simply may not be the plan that you had in mind, or that your family would have preferred.

Every state has laws of “intestacy.” Intestacy is the word for dying without a will. The laws of intestacy don’t control assets that have beneficiary designations (unless those beneficiaries have also died) so this “plan without a plan” can result in very unfair and unequal divisions of assets.

One major pitfall to be aware of in Colorado’s laws of intestacy is the treatment of the surviving spouse. Your surviving spouse will NOT inherit everything you have built together. The half that is deemed to be yours will be divided between your spouse and your next of kin.

Watch out, because this will affect you too if your spouse is the one who dies first. You don’t want to have to sell your home to pay out to your spouses’s next of kin!

Another major downside to not having a plan is that you have no provisions for how to care for you if you become incapacitated. In Colorado, that means two important things: one, your loved ones are going to have to spend a bunch of money and time begging a judge for permission to care for you and two, you are going to be kept alive, even as a hopeless vegetable with no quality of life for as long as technologically possible (and that can be a long time!).

How Forbes Got It Wrong: “It simply may not be the plan that you had in mind, or that your family would have preferred.”

I guarantee that it will not be the plan you had in mind, or that your family would have preferred. Let me list just a short sampling of the things people discover about failure-to-plan plans that they usually do not like:

~80% of people become incapacitated during their lives for some period of time.

Court Hearing

If you have no plan, all of your financials and medical information becomes part of the court (i.e. public) record so that someone (not of your choosing) can get the court’s approval to make medical and personal decisions for you (and get paid for it out of your money).

~Likewise, when you die, every single thing you own is itemized for the public record along with who is getting it, how old they are and where they live. It makes for very convenient sales target list-making for the honorable and just target list-making for the dishonorable con men and women who are known to work the probate lists.

~The amount that you can pass on free of estate tax has changed every year since 2001.

Forty percent

Yes, we have a $5M exemption now. But Obama has proposed a $3.5M exemption and what’s to stop the next proposal from returning to $1M or even $600,000? (That would mean that anything you own after the first $600,000 would be taxed at the rate of (probably) 40% due within 9 months of death.)

It’s all so avoidable!

What makes the idea of getting your estate plan done so scary for you? Take just two minutes right now and come up with three obstacles to getting your estate plan done. Then come up with the three best reasons to get it done. I’ll bet if you compare the two, the obstacles are *nothing* compared to the reasons to do it.

You know that Bennett Braverman and I are experienced in all sorts of fascinating family and asset arrangements and we can probably help you with yours too.

Best Regards, Diedre Braverman

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I visited the eye doctor today. My vision has changed a lot since I got my prescription lenses only 6 months ago. I think of optometry as a pretty unchanging area of medicine (“Is it better with one? Or two? One? Or two?”). I was surprised that they had two new tests for me today: to check the health of my areas of my eye deeper than my retina.

Your regular (annual to no-more-than-every-three-years) legal planning check up is similar to your annual eye exam. You and your attorney are searching for the changes that are particular to you (like the testing of your eye’s vision – your prescription). And you’re also looking for changes that apply to most or all patients: the new exam technologies.

Let me put this another, more graphic, way. When you leave your attorney’s office with your shiny new estate plan, all of the pieces that are particular to you are fresh and current: like fresh peaches.

And they have been baked into a pie of legal language designed to achieve your current goals within the context of the laws as they were written at that moment in time. In a way it’s a sort of snapshot. But on with our food analogy. The peaches of your particular family and assets and choices are blended with the pie crust of today’s laws including tax codes and out comes a tasty pie!

In estate planning, the annual checkup can be divided into the same two categories. The first category is the changes that are particular to you such as the financial maturity of a child that you now want to name in positions of responsibility or the birth of a grandchild whose education you want to help with.

These changes can become dramatic over time. So dramatic, in fact, that the old estate planning documents are no longer made with fresh peaches. If they had a smell, it would seem to come from these:

The second category is the changes that apply to all legal planning clients with a plan similar to yours. These changes could be the result of changing legal strategies: a creative lawyer somewhere has punched a hole into a previously solid strategy so that your lawyers must be even more creative in restructuring the plan to achieve your objectives. They could be the result of changes in applicable laws: Congress makes yet another change to the estate tax system and your lawyers must adapt your plan to take full advantage of all deductions and exemptions permitted under the new law. Or they could be the result of changing legal technology: your lawyers or someone they know have developed a new tool or technique that better achieves your objectives than what was state-of-the-art legal practice the year before. These are all changes to your pie crust.

If you add the rotten inside ingredients to outdated outside ingredients you end up with a pie no one wants:

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Tax-free Versus Tax-deferred

Retirement Accounts – 401(k)s, (403(b)s, IRAs and others – have wonderful tax advantages. Some allow you to put pre-tax money into an account, which then grows tax-free for years or evendecades until you withdraw it. When you withdraw it, you pay tax on the withdrawal. So they aren’t “tax-free”, they’re “tax-deferred.”

Others, called Roth accounts, work differently. You put after-tax money in them (in other words, you have paid income tax and other taxes like unemployment, etc. on the income before you deposit the money into the account). The money grows tax-free. That is, you do not pay income tax each year on the gains in the account. Then, when you withdraw the money, it’s all tax-free: both the after-tax deposits you made and the gains on those after-tax deposits which you never did (and never will) pay any tax on.

These are pretty compelling reasons for putting money into Retirement Accounts.

Estate Planning with Retirement Accounts

How big can it get?

From an estate planning perspective, Retirement Accounts provide some attractive planning options. You can pass Retirement Accounts on to younger generations in ways that allow your beneficiaries to defer paying taxes on the funds in the accounts for, perhaps, decades as the inherited Retirement Accounts grow tax-free (for Roths) or tax-deferred (for non-Roths). When we’re talking about an inheritance by a prudent 20-year old or, even more securely, a trustee for a 20-year old, the inherited Retirement Account could be worth two or three or ten times its original value when inherited.

Types of Retirement Account Investments

Now, there is a question I often get that I must answer here in a way that you may not like. Unlike other kinds of accounts, most Retirement Account custodians only offer paper investments as options for investment. That leaves out entire classes of investment such as real estate, tax liens and small businesses. This article ends here if you own a 401(k) or 401(3)b and you can’t roll it over into an IRA.

If you have an IRA, or the option to rollover into an IRA, there are a few “self-directed IRA” custodians (a “custodian” is the company that holds your money and complies with IRS requirements for IRA reporting and – most importantly – gives it back to you when you want it) who will permit you to invest in any of those non-traditional classes of investment.

Protect Yourself From Danger

Caution up front makes for a safe retirement later.

A web search will turn up a few. Because they are not well-known companies, I cannot tell you about any experiences our clients have had with any of them. But please do read this warning from The North American Securities Administrators Association Self-Directed IRA Fraud. I also encourage you to check out this alert from the Securities and Exchange Commission (SEC): Self-Directed IRAs and the Risk of Fraud It’s a pretty murky area so keep a sharp eye out and tread carefully. You don’t want to lose everything because you tried for a few extra points on your return.

To maximize the tax-free or tax-deferred growth of your Retirement Accounts, please give us a call at (303) 800-1588 to schedule a no obligation consultation. We’d love to help!

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Right now, if you inherit an IRA or other tax-advantaged retirement account, you are allowed to stretch out the withdrawals, and therefore the income tax, over the course of your own life expectancy.

Estate planning attorneys have found a way to wrap asset protection around that inherited IRA by putting it into a special tax-advantaged trust.

Congress proposed to end this nice tax strategy by requiring that all inherited IRAs must be withdrawn completely (and all income taxes paid) within 5 years but abandoned that proposal. So, inherited IRAs can offer income tax deferral over decades if handled properly.

Ms. Greene’s article points out the pitfalls of leaving IRAs to beneficiaries without strategic legal planning.

Naming a Living Trust as Beneficiary

Some people name their living trust as the beneficiary of the IRA, perhaps hoping to gain the asset protection advantages of a protective trust. But a typical living trust has no life expectancy. It also doesn’t have asset protection unless than was built into it. Without a life expectancy, a typical living trust cannot qualify for withdrawals over decades. The tax opportunity is lost.

Mistitling the Inherited IRA

Titling problems: When you inherit an IRA, you should retitle the account so it reads like this: “William Smith, Deceased (date of death) IRA F/B/O (for benefit of) James Smith, Beneficiary.” But Mr. Anderson is working with a client who received forms from the custodian of the account that didn’t spell out that he had inherited the account. The second set of forms the client received still needed some edits to avoid possibly disqualifying the account, Mr. Anderson says.

Missing the Estate Tax Deduction

The final mistake Ms. Greene warns readers to avoid is failing to take a tax deduction against the IRA income for estate taxes paid. The estate tax is deductible against the IRA income even if the tax was paid out of other estate assets.

Mistreating Your Children

I want to add another warning to readers of this blog: don’t let IRA planning end up treating your children unfairly. The child inheriting the IRA is going to have to pay income taxes against it, yes, but the child inheriting non-IRA assets is probably the one who has to pay estate taxes on all of the assets, including the IRA.

A Happy Ending

There are creative and effective ways to ensure fairness without trying to predict how much the income tax on the IRA will be (you’d need to know the inheriting child’s marginal income tax rate as well as when they were going to withdraw the income and how much growth the IRA would see before they withdraw) and how much the estate tax is going to be (you’ll have to predict what Congress is going to do about the exemption and predict the exact size of your estate).

As an example, use an IRA trust to name all of your children the beneficiary of so that the IRA tax deduction is shared equally, all children get a chance to postpone income taxes and all of the IRA assets are protected from divorce, lawsuits or creditors.

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